9 credit score myths debunked

Credit scores are a critical part of your financial wellbeing, particularly when you’re seeking to borrow money. However, whether you’re hoping to be approved for a mortgage or simply want to check your score, there’s a lot of myths floating around.

First, what is a credit score? A credit score is a tool that potential lenders use to assess how likely you are to make repayments should they lend you money. It’s a way of calculating how much risk you pose. As a result, the better your credit score, the more likely you are to be accepted when applying for credit and the more competitive the interest rate you’ll be offered. Credit scores are commonly used when applying for credit, as well as when you’re seeking services, such as switching utility providers.

Whilst credit scores are important, there’s a lot of misconceptions. To help improve your score, we unravel some of the most common myths.

Myth 1: Checking your own score will have a negative impact

Whilst lenders checking your score will have an impact, you can check your own without worrying. In fact, it’s a good idea to regularly check your score to ensure it’s ‘good’ when you do need to borrow. All three main credit score in the agencies offer a free service to get a snapshot of your credit report, as well as offering full reports for a small fee.

Myth 2: All credit checks affect credit scores

The part of this myth that’s wrong is ‘all’; some credit checks will affect your score. There are two different types of credit checks that can be performed. A hard credit check is typically used when you’re actively applying for credit and may have an impact on your overall score. A soft credit check, in contrast, has no impact.

Myth 3: You have one universal credit score

Each credit reference agency uses its own criteria and methods for calculating your credit score. As a result, you have numerous credit scores. There are three main agencies in the UK and if you’re applying for credit or aiming to improve your score, it’s a good idea to review the report from all of them.

Myth 4: Increasing savings will improve your score

Your credit score focuses on your relationship with borrowing money. Neither your credit score nor report will factor what you hold in savings accounts. If you aim to improve your credit score, it’s more beneficial to reduce the amount of debt you have rather than increasing savings.

Myth 5: Never borrowing means you have a good credit score

Whilst logically this may make sense as it could indicate that you’re good at managing a budget, this isn’t true. This is because credit reference agencies and lenders don’t have any references to you making debt repayments. Therefore, it’s difficult to assess how likely you are to default and the risk you pose. Taking out a credit card and making purchases that are repaid in full is one way to overcome this issue.

Myth 6: Closing credit card accounts will automatically improve your score

You might think having fewer credit cards will help boost your credit score, but this isn’t always the case. First, having a long-standing relationship with a lender or provider can be a positive factor as it indicates stability. Secondly, it may increase the portion of available credit that’s in use, which, in turn, can harm your score.

Myth 7: Your earnings have an impact

Your earnings aren’t factored into your credit score at all. However, this doesn’t mean you should dismiss income when approaching potential lenders. Whether you’ll be able to meet repayments is a crucial part of assessing whether or not your application will be accepted in addition to a credit score. Before applying for any form borrowing you should assess how affordable meeting the repayments will be.

Myth 8: Your partner’s score is automatically linked to yours

Even if you’re married, your partner’s score isn’t automatically linked to yours. This only occurs if you have a financial link. This may include taking out a joint mortgage, opening a joint savings account, or both being named on a utility bill. If you are financially linked with someone, their credit score may have an impact on yours. As a result, it’s important to inform credit agencies if your situation changes.

Myth 9: You can’t borrow with a bad credit score

Your credit score is important when approaching lenders but that doesn’t mean a ‘bad’ score will exclude you from all forms of credit. In fact, taking out credit and sticking to repayments can be an excellent way to improve it. However, you may find that some lenders are reluctant to approve your application, so it’s important to check their criteria. There are specialist lenders aimed at those with a poor score. One of the key drawbacks with a bad credit score is that you will typically be offered credit with higher interest rates, increasing the cost of borrowing.

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